Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals

authored by

Annika Herr, Moritz Suppliet

Abstract

Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits – below which drugs are exempt from co-payments – on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.

External Organisation(s)

University Hospital Düsseldorf
Tilburg University

Type

Article

Journal

Journal of health economics

Volume

56

Pages

19-29

No. of pages

11

ISSN

0167-6296

Publication date

12.2017

Publication status

Published

Peer reviewed

Yes

ASJC Scopus subject areas

Health Policy, Public Health, Environmental and Occupational Health

Sustainable Development Goals

SDG 3 - Good Health and Well-being

Electronic version(s)

https://doi.org/10.1016/j.jhealeco.2017.08.008 (Access: Closed)